An article by: Editorial board

In a country located between the Black and Mediterranean seas, the rise of consumer prices refuses to stop. The Turkish Central Bank has begun a new, but certainly not the last, tightening of monetary policy, raising the base rate to a “fantastic” 30 percent.

Galloping inflation in Turkey – on September 22, 2023, the rate crossed the “psychological” threshold of 60% per year – prompted the new governor of the Central Bank of Turkey, Hafize Gaye Erkan, to announce a new shock: on September 21, Türkiye Chumhuriyet Merkez Bankasi (TCMB), known in the country as the Central Bank of the Republic of Turkey, increased its main base interest rate for the fourth month in a row, this time by as much as 5 percentage points, from 25% to 30%, reaching the highest level since 2003.

Gaye Erkan, who has years of experience working for Goldman Sachs, First Republic Bank of the USA, and the global financial advisory firm Marsh McLennan (a member of the prestigious Fortune 500 list), emphasized that the radical decision was made after the “consultation” and “clear approval” from Turkish President Recep Tayyip Erdogan.

In a special statement, the TCMB also announced that the monetary tightening policy “will be gradually strengthened” to the necessary extent and until a “significant improvement” is achieved in “inflationary pressures.” In other words, the base rate will be determined in such a way as to provide the Turkish economy with monetary and financial conditions capable of reducing inflationary trends and achieving the strategic inflation target of 5% per year in the medium term.

Ankara’s new tightening of monetary policy has left Turkish society in a state of chaos. Despite the authorities’ denials, very persistent rumors are circulating in the country about the upcoming introduction of 500 and even 1000 lire banknotes into circulation. Fake “samples” of the new “heavy” banknotes were apparently published on social networks.

At the same time, the news published by the Turkish press – again, not confirmed by the government – claimed that TCMB “may introduce new 5 and 10 lira coins into circulation.” Coins are still used in the country, but in fact, only the one-lira coin has retained its real purchasing power. “Small” coins of 1, 5, 10, 25, and 50 kurus (cents) are no longer used even by housewives during daily shopping.

Some prominent Turkish economists have said they are in favor of introducing large denomination banknotes into circulation in the country. The idea has found wide support among the population, which, in addition to bank cards, continues to widely use cash. Currently, the largest 200-lira note is worth $7.37 at the current exchange rate (as of September 22). When it was introduced in 2009, its price was over $130.

One of the most obvious indicators of galloping inflation is property prices, which in Istanbul have skyrocketed by an average of 68% per year. “This trend is a cause for concern,” said Buğra Gökçe, an adviser to Istanbul’s mayor. This is explained by the fact that in August 2023, 17 thousand houses were sold in the capital (5,500 square kilometers and 15 million inhabitants), which is 6% less than in the same period a year ago.

According to Gökçe, “real estate sales to foreign nationals in 2023 leave much to be desired, having shrunk by 42% year on year.” The three main consumers of Turkey’s brick industry are Russia, Iran, and Kazakhstan.

“You don’t need to be an expert,” explains Zhanna Ozdemir, director of a real estate agency in Alanya, a coastal city in the south of the country, “to understand that among the main reasons for the decline in home sales to foreigners was the strictness of the Turkish authorities who limited the issuance of residence permits to a minimum, especially in areas popular with expats.” From the viewpoint of foreign residents, “Turkey has become a very expensive and inhospitable country in recent years.”

Construction companies in Turkey are sounding the alarm: many construction sites are frozen. Foreigners are turning away from new homes, opting instead for secondary-market housing, which offers larger living spaces at the same or even lower prices than new houses and apartments.

In this extremely difficult situation for the Turkish economy, an agreement was reached between Ankara and Riyadh on September 19, 2023, according to which Saudi Arabia will contribute $5 billion to the Central Bank of Turkey. The money will come from Saudi Arabia’s state development agency, the Saudi Fund for Development (SFD). In a communique, the Riyadh government emphasized that “promoting economic and social growth, as well as sustainable development of Turkey, is one of the main objectives of the financial agreement.”

In recent months, President Erdogan has stepped up his international activities, seeking to restore partnerships with countries in the Arab world. On September 10, on the sidelines of the G20 leaders’ meeting in New Delhi, he had a lengthy conversation with Egyptian President Abdel Fattah el-Sisi. The parties expressed a strong desire to intensify economic and trade exchanges. Relations between the two countries were almost completely severed in 2013, when el-Sisi (then defense minister) led an uprising that overthrew the Turkish-backed Muslim Brotherhood government led by Mohamed Morsi, which came to power after the fall of Hosni Mubarak.


Giornalisti e Redattori di Pluralia

Editorial board